OREANDA-NEWS. Fitch Ratings has affirmed Fox Street 2 (RF) Limited's notes, as follows:

ZAR81.3m class A2 notes: affirmed at 'AAA(zaf)'; Outlook Stable
ZAR220m class A3 notes: affirmed at 'AAA(zaf)'; Outlook Stable
ZAR220m class A4 notes: affirmed at 'AAA(zaf)'; Outlook Stable
ZAR586m class A5 notes: affirmed at 'AAA(zaf)'; Outlook Stable
ZAR126m class B notes: affirmed at 'A-(zaf)'; Outlook Stable
ZAR50m class C notes: affirmed at 'BBB-(zaf)'; Outlook revised to Positive from Stable
ZAR35m class D notes: affirmed at 'BB(zaf)'; Outlook revised to Positive from Stable

The issuance volumes above are as of the interest payment date in November 2014. We expect further amortisation of the notes following the February interest payment date.

Fox Street 2 (RF) Limited is a securitisation of mortgage loans granted by Investec Bank Limited to its private banking clients in South Africa. It is Investec's seventh standalone South African RMBS transaction.

The affirmation and revision of the class C and D Outlooks to Positive reflect the strong performance of the assets and robust credit enhancement (CE) provided by overcollateralisation and the various reserves, which represents 24.1% for the class A5 notes, 14.8% for the class B1 notes, 11.1% for the class C1 notes and 8.6% for the class D1 notes.

KEY RATING DRIVERS
Robust Asset Performance and Underwriting
The historical performance of Investec Bank Limited's (Investec, A+(zaf)/Stable/F1(zaf)) mortgage loan book is better than the market average for South Africa. In Fitch's opinion, this is due to the credit profile of Investec's private banking clients as well as its underwriting practises. The agency considered this by applying a 10% downward lender adjustment to the default probability at 'B(zaf)'.

Using the portfolio as of end-October 2014, Fitch has calculated the weighted average foreclosure frequency and weighted average recovery rate at 23.0% and 54.2%, respectively at 'AAA(zaf)', whereas the comparable figures at closing were 23.7% and 55.2%.

Bespoke Customer Profile
All borrowers are private banking clients of Investec who typically earn in excess of ZAR800,000 per year or are professionals with high future expected incomes. Compared with standard prime borrowers, these customers tend to have higher leverage but are expected to have a lower risk profile and to pay down their loans more quickly.

Large Properties and Loan Exposures
The portfolio consists of larger-than-average loans secured by higher value properties. Fitch has made relevant adjustments as per its criteria to address the risk of steeper sale discounts.

Interest-Constrained Structure
The transaction has a strict separation of the interest and principal priority of payments (PoP), which could result in shortages in the interest PoP should performance deteriorate. The liquidity reserve mitigates this risk, but once it is depleted it is unlikely to be replenished with interest proceeds (from underlying assets) alone. This constrains the ratings of the notes (except the class A notes) and explains the difference between the CE and portfolio losses assumed by Fitch for each rating scenario.

Originator Could Call Notes at Loss
The originator has the option to repurchase notes from 60 months after closing (except for the outstanding A2) at their outstanding principal (plus accrued interest) minus any amount written on the principal deficiency ledger's (PDL) balance as of the call date. Losses that could otherwise cure may crystallise as a result of this call option. However, based on the stressed cash flow analysis, Fitch considers the note losses potentially resulting from this feature as very limited. In addition, no such losses are expected on the class A notes, even under a 'AAA(zaf)' scenario, as Fitch does not expect class A to have a positive PDL.

Stable Asset Outlook
Fitch expects stable mortgage performance in the medium term. The agency also expects nominal housing appreciation to slow over the coming years, and to align with consumer inflation, which is also on a downward trend. In Fitch's view, the industry has made significant progress in working out the defaults inherited from the crisis years of 2008 and 2009. The possibility of a sharp rise in interest rates has reduced as a result of falling oil prices and receding inflation, although a further slowdown in the economy represents a risk to mortgage performance and the housing market.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case expectations, which in turn may result in potential rating actions on the notes. Some examples of sensitivities to the foreclosure and recovery rates are below. The ratings for the class A notes below only refer to the sub-class A5 notes. More senior sub-classes are less sensitive to the changes assumed below. More detailed model implied ratings sensitivity can be found in the New Issue report available at www.fitchratings.com.

Rating sensitivity to increased foreclosure rate (class A/B/C/D)
Current ratings (base case: 5.9%): 'AAA(zaf)'/'A-(zaf)'/'BBB-(zaf)'/'BB(zaf)'
Increase base case by 15%: 'AA+(zaf)'/'A-(zaf)'/'BBB-(zaf)'/'BB(zaf)'
Increase base case by 30%: 'AA-(zaf)'/'BBB+(zaf)'/'BBB-(zaf)'/'BB(zaf)'

Rating sensitivity to decreased recovery rate (class A/B/C/D)
Current ratings (base case: 83.4%): 'AAA(zaf)'/'A-(zaf)'/'BBB-(zaf)'/'BB(zaf)'
Decrease base case by 15%: 'AAA(zaf)'/'A-(zaf)'/'BBB-(zaf)'/'BB(zaf)'
Decrease base case by 30%: 'AAA(zaf)'/'A-(zaf)'/'BBB-(zaf)'/'BB(zaf)'

Rating sensitivity to increased foreclosure rate and decreased recovery rate (class A / B /C / D)
Current ratings: 'AAA(zaf)'/'A-(zaf)'/'BBB-(zaf)'/'BB(zaf)'
Increase foreclosure rate by 15% and decrease recovery rate by 15%: 'AA-(zaf)'/'A-(zaf)'/'BBB-(zaf)'/'BB(zaf)'
Increase foreclosure rate by 30% and decrease recovery rate by 30%: 'A+(zaf)'/'BBB+(zaf)'/'BB+(zaf)'/'BB-(zaf)'